Life insurance ads on TV: what "$9.95 a month" buys

A TV ad that says coverage starts at "$9.95 a month" is quoting the price of one unit of a guaranteed acceptance whole life policy, not the price of a policy that pays a meaningful amount. How much a unit pays depends on your age, sex and state, and for the first two years a death from natural causes usually pays only a reduced benefit. These policies are legitimate products for people who cannot get other coverage, but the advertised price is the smallest number in the ad.

What the ad is selling

Most of these commercials promote guaranteed acceptance (also called guaranteed issue) whole life: no medical exam and no health questions, so acceptance is certain if you are in the eligible age range. The product is built for people who might be declined elsewhere. Because the insurer accepts everyone, it protects itself with two features: higher prices per dollar of coverage, and a graded or limited benefit period that cuts the payout for early natural death. guaranteed issue life insurance: no health questions, with limits and graded death benefits: why the first two years matter explain both in detail.

The ads tend to emphasize three points: that you cannot be turned down, that the monthly cost is low, and that the rate will not rise. Each can be true while the full picture is much less attractive than the headline.

How a "per unit" price works

Colonial Penn, which runs one of the best-known campaigns, explains the structure on its own FAQ page. The plan is sold in units at $9.95 per unit per month, and customers can buy up to 25 units. The death benefit per unit varies with your age, your sex (in Montana, age only) and your state. The company says you get the quote only after you supply those details. It also says your benefit will not decrease as you get older or if your health changes, according to its benefit FAQ.

The consequence is that one price buys very different amounts of coverage for different people, and the same company's price is not the same as the price of its competitors. Older buyers get less coverage per unit than younger ones, which is not a trick but is easy to miss when an ad shows a single number.

Other companies run similar campaigns for their own guaranteed issue products, with names and unit structures that differ. The questions below work for any of them.

The two-year limit

Guaranteed acceptance policies typically carry a limited benefit period of two years, which Colonial Penn describes as a graded death benefit with a limited payment in the first two years. Typically, if the insured dies of natural causes inside that window, the insurer pays a stated reduced amount, often the premiums paid plus interest. Accidental death is normally covered in full from the start. The exact formula is in the policy, not the commercial, so read it during the free-look period; see the free-look period: returning a policy for a refund.

A hypothetical comparison

This example is invented to show the arithmetic and is not a market price. Say the monthly cost is $9.95 per unit and one unit buys $1,800 of coverage for a certain 72-year-old, which means 10 units at $99.50 a month would buy $18,000.

1. Annual premium: $99.50 x 12 = $1,194.
2. Cost per $1,000 of coverage per year: $1,194 / 18 = about $66.
3. If the insured lives 12 years, total premiums are about $14,328 against an $18,000 benefit; after about 15 years the premiums paid exceed the benefit.
4. If the insured dies in year 1, a graded benefit might pay back only the premiums, about $1,194 plus interest.

Now compare a simplified issue policy for the same person: a short list of health questions, but full benefit from day one. If the 72-year-old qualifies and the quote is lower per $1,000, the guaranteed product costs more and pays less early. If the same person has a condition that would lead to a decline, the guaranteed product may be the only option. The right answer depends on health, and an honest agent will quote both. See simplified issue life insurance.

Questions to ask before you call

• How much does the policy pay, in dollars, for my age and sex? Ask for the total benefit, the monthly premium, and the premium per $1,000.
• What is paid if I die in year one or two from an illness? Get the answer in writing.
• Is the premium level for life? Some products are level; others are priced by age band. Check the policy.
• Is this the only company you sell? A captive agent or call center for one insurer cannot shop the market; an independent agent can. See captive vs independent life insurance agents.
• Can I get a policy that pays in full from the start? If you are in reasonable health, ask for simplified issue quotes.
• Do I need this at all? If you have savings to pay for a funeral, you may not; see what a funeral costs and how families pay for it and the final expense and funeral cost calculator.

Warning signs

Most TV advertisers are licensed insurers, but some lead-generation sites mimic the ads to collect your phone number and sell it to many agents, and you may get repeated calls afterward. Be cautious if:

• The site will not name the insurer before asking for your phone number.
• You are told the price is the same for everyone and no age is asked.
• You are pressed to decide today, or asked to pay by gift card or wire.
• You are asked for a bank account number before receiving a written policy summary.

Verify any agent's license with your state insurance department, and report misleading ads or sales practices there. For the mail and phone version of the same product, see mail-order and direct-response life insurance. For the wider category, see final expense insurance: what it covers and costs.

Key takeaways

• "$9.95 a month" is typically the price of one unit, and the coverage per unit depends on age, sex and state.
• Guaranteed acceptance policies accept everyone but usually pay a reduced benefit for natural death in the first two years.
• Always convert a quote to total coverage and cost per $1,000 before comparing it with other options.
• If you can answer a few health questions, simplified issue coverage may pay more for less.
• Never hand over a bank account number or payment before you have the written policy terms.